Distribution 2
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  • 1. Chapter 9
    • Marketing Channels
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 2. Learning Objectives
    • Understand channel structure and how channels manage discrepancies
    • Understand concept of channel flows
    • Relationship of channel flows to service levels
    • Understand channel formats and levels
    • Understand what channel systems are expected to deliver
    • Prominent marketing and channel systems
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 3. Channel Functions
    • Information gathering
    • Consumer motivation
    • Bargaining with suppliers
    • Placing orders
    • Financing
    • Inventory management
    • Risk bearing
    • After sales support
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 4. Role of Intermediaries SDM- Ch 9 Tata McGraw Hill Publishing Company 1 Company 2 Company 3 Intermediary Large number of CONSUMERS Direct and Indirect….
  • 5. Direct Distribution
    • Company to consumers or retailers without use of intermediaries. Also includes reaching Institutional buyers .
    • Selling on the Internet
    • If products are technically complex , this system is preferred
    • Cost is a major consideration to adopt this mode
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 6. Direct Distribution - Examples
    • Banking services
    • Credit cards
    • Petrol / diesel – company own outlets
    • Land line phone connections
    • Health services
    • Utilities – electricity, water
    • Subsidized ration
    • Education
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 7. Indirect Distribution
    • Goods may move through a set of intermediaries
      • Most FMCG companies follow this route
    • The intermediary has a far better reach than the company
    • The cost of operations of an intermediary like a wholesaler / retailer is shared with many businesses.
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 8. Indirect Distribution - Examples
    • All FMCG, consumer durables and pharmaceutical
    • Petrol / diesel / cooking gas - franchisees
    • Insurance
    • Mobile phones
    • All kinds of passenger transport
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 9. Marketing Channel Systems
    • Vertical :
      • Corporate
      • Administered
      • Contractual
    • Horizontal
    • Multi-channel
    SDM- Ch 9 Tata McGraw Hill Publishing Vertical….
  • 10. Vertical Marketing System
    • Various parties like producers, wholesalers and retailers act as a unified system to avoid conflicts
    • Improves operating efficiency and marketing effectiveness
    • 3 types:
      • Corporate
      • Administered
      • Contractual
    SDM- Ch 9 Tata McGraw Hill Publishing Corporate…
  • 11. Corporate VMS
    • Combines successive stages of production and distribution under single ownership
    • Examples :
      • Bata, Bombay Dyeing, Raymond
      • Sears, Goodyear
      • Suppliers of food items could be also their own supplying firms - like Nilgiris
    SDM- Ch 9 Tata McGraw Hill Publishing Administered…
  • 12. Administered VMS
    • Co-ordinates distribution activities
    • Gains market power by dominating a channel
    • Usually true of dominant brands like GE, Kodak, Pepsi, Gillette, Coke and HLL in certain locations
      • Command high level of co-operation in shelf space, displays, pricing policies and promotion strategies
    SDM- Ch 9 Tata McGraw Hill Publishing Contractual…
  • 13. Contractual VMS
    • Independent producers, wholesalers and retailers operate on a contract
    • Could take the forms of:
      • Wholesaler sponsored voluntary chains
      • Retailer co-operatives
      • Manufacturer sponsored retail or wholesale franchise
      • Franchise organizations
      • Service firm sponsored retail franchise
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 14. Horizontal Marketing Systems
    • Two or more unrelated companies join together to pool resources and exploit an emerging market opportunity
      • In-store banking in hotels, big stores
      • Retail outlets in petrol bunks
      • Coffee Day outlets in airports
    SDM- Ch 9 Tata McGraw Hill Publishing Multi-channel…
  • 15. Multi-channel Distribution
    • Company uses different channels to reach / same or different market segments
      • Most FMCG companies have separate networks for retail market and institutions
      • Pharma companies may use different channels to reach doctors, chemists and hospitals
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 16. Multi-channel Distribution
    • Used in situations where :
      • Same product but different market segments
      • Unrelated products in same market – detergents and ice creams (HLL)
      • Size of buyers varies
      • Geographic concentration of potential consumers varies
      • Reach is difficult
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 17. Distribution Channels
    • Take care of the following ‘discrepancies’
      • Spatial
      • Temporal
      • Breaking bulk
      • Assortment and
      • Financial support
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 18. Spatial Discrepancy
    • The channel system helps reduce the ‘distance’ between the producer and the consumer of his products.
      • Consumers are scattered
      • Have to be reached cost effectively
    • Example : companies produce products in one location even for global needs
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 19. Temporal Discrepancy
    • The channel system helps in speeding up in meeting the requirement of the consumers
      • Time when the product is made and when it is consumed is different
      • Limited number of production points but hundreds of consumers
    • Maruti plant in Gurgaon – cars and spares are available when the consumer wants
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 20. Breaking Bulk
    • The channel system reduces large quantities into consumer acceptable lot sizes
      • Production has to be in large quantities to benefit from economies of scale
      • Consumption is necessarily in small lot sizes
    • India is the ultimate example in breaking bulk – you can buy one cigarette, one Anacin, one toffee etc
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 21. Need for Assortment
    • The channel system helps aggregate a range of products for the benefit of the consumer – it could be made by one company or several of them.
      • For the same product, it could be a variety of brands and pack sizes
    • MICO makes fuel injection equipment, spark plugs etc in different plants but its dealer will sell the entire range.
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 22. Financial Support
    • The channel system provides critical working capital to its customers by extending credit.
    • Some channel members like stockists and wholesalers finance the business of their customers.
      • Medical diagnostic equipment to hospitals
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 23. Channel Flows
    • Forward flow – company to its customers – goods and services
    • Backward flow – customers to the company – payment for the goods. Returned goods.
    • Flows both ways - information
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 24. Three Flows Recognized SDM- Ch 9 Tata McGraw Hill Publishing FORWARD BOTH WAYS BACKWARD Goods and Services Information Payment for goods / returns Company Customers
  • 25. The Five Channel Flows
    • Physical flow of goods
    • Title flow of goods (negotiation, ownership and risk sharing also)
    • Payment flows (financing and payment)
    • Information flow (about goods, orders placed and orders executed)
    • Promotion flows
    SDM- Ch 9 Tata McGraw Hill Publishing Who is responsible?
  • 26. Channel Flows
    • Some channel member/s have to perform them
    • There is a cost associated with each flow
    • If a channel member is discontinued, the flow has to be performed by another
    • All flows and transactions can be effective only with timely, accurate and correct information
    • The channel flow is ideally to be handled by the most competent channel member who can deliver best service at the lowest cost.
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 27. Degree of Involvement SDM- Ch 9 Tata McGraw Hill Publishing Channel formats… Manufacturer C&FA or Distribution Center Distributor, dealers Wholesaler or retailer Physical Title / ownership Information Risk sharing Promotions Physical Title Information Payment Order processing Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions
  • 28. Channel Formats
    • Is decided by who ‘drives’ the channel system:
      • Producer driven
      • Seller driven
      • Service driven
      • Others
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 29. Producer Driven
    • This is the effort of the manufacturer to reach the product to his consumers. Examples:
      • Company owned retail outlets – petrol, Bata, Reliance mobiles
      • Licensed outlets – KMF
      • Consignment selling agents
      • Franchisees
      • Brokers
      • Vending machines
      • Company contracted distributors
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 30. Seller Driven
    • Use of existing channels to reach the largest number of end users
      • Existing wholesalers and retailers
      • Modern retail formats
      • Specialty stores – Shoppers’ Stop
      • Discount stores – Subhiksha
      • Pheriwalas
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 31. Service Driven
    • These are the people who facilitate the distribution
      • Transporters and freight forwarders
      • Providers of warehouse space
      • C&F agents
      • 3P Logistics service providers
      • Couriers
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 32. Other formats
    • Multi-level marketing systems – Amway, Modicare, Tupperware, Herbalife
    • Co-operative societies
    • Telephone kiosks
    • TV home shopping
    • Catalogue marketing
    • The internet
    • Exhibitions, fairs and trade shows
    • Data base marketing
    SDM- Ch 9 Tata McGraw Hill Publishing Channel levels…
  • 33. Channel Levels
    • Zero level – if the product or service is provided to the end user directly by the company.
      • Used mostly by companies delivering service like health, education, banking (also known as service channels)
    • One level – consists of one intermediary
    • Two level – consists of two intermediaries and is the most common for FMCG products
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 34. Service Channel
    • Companies establish their own unique channels to deliver services like health, education, banking, insurance etc
      • Hundreds of bank branches to be close to prospects
      • Banks may also recruit independent agents to get customers to walk in
      • Consulting or IT firm uses one team for Biz Development and another for execution
      • Musician or magician may use mass media, events or web sites to reach customers
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 35. Channel Levels SDM- Ch 9 Tata McGraw Hill Publishing Manufacturer Manufacturer Manufacturer End User Retailer End User Retailer End User Distributor/ wholesaler Zero level Two level One level Summarize Expectations…
  • 36. Key Learnings
    • Marketing channels are responsible for flows – physical possession, title, payments, information and promotion covered by forward, backward and flows both ways
    • Each channel partner has a different role in supporting customer service through suitable channel flows
    • Number of categories operating in a channel system define the channel levels as one, two etc
    SDM- Ch 9 Tata McGraw Hill Publishing
  • 37. Key Learnings
    • Channel system deliverables are: bulk breaking, place utility, reduced waiting time, providing assortment, financial help, installation and after sales support.
    • Customer service has to be done at optimum cost
    • Marketing channel systems are categorised as vertical, horizontal and multi-channel depending on the structure and the functionality
    SDM- Ch 9 Tata McGraw Hill Publishing